Social activists including Aruna Roy, Nikhil Dey, Prashant Bhusan, Jayati Ghosh, and others have urged the UPA government to change the management and liquidate personal assets of Kingfisher Airlines chairman to save the carrier
Eminent social activists have once again hit out at Kingfisher Airlines. In a recently released statement by activists Aruna Roy, who is also member of National Advisory Council (NAC), and Nikhil Dey, belonging to the Mazdoor Kisan Shakti Sangathan (MKSS), have urged the government not to bail out the cash-strapped airline and called it a case of gross mismanagement. They have also requested the government to change airline’s management and liquidate the personal assets of its chairman Vijay Mallya. The statement is been endorsed by several concerned citizen and activists including Prashant Bhusan, Jayati Ghosh, Harsh Mander, EAS Sarma and Praful Biswas among others.
“The dire straits of the airline are tangible, however that cannot be a reason to change an entire policy for one airline. We reiterate our demand that the government not consider this unconscionable bailout which will reinforce the skewed allocation of limited resources between the social and other sectors; that the state must force a change of management, the personal assets of Mr Mallya must be liquidated and a comprehensive review of the aviation policy be initiated,” says the statement.
It may be recalled that earlier, on 27th February, Ms Roy had sent a letter to the prime minister objecting the possible bailout. (http://www.moneylife.in/article/activists-urge-pm-not-to-bailout-kingfisher-airlines-using-public-funds/23947.html)
Here is the statement -
“On 27th February 2012, Aruna Roy and several other concerned citizens wrote to the prime minister objecting to a potential bailout of Kingfisher Airlines at public expense. As this letter was circulated, it received several more endorsements.
The signatories include Nikhil Dey, Sucheta Dalal, Debashis Basu, Prashant Bhushan, Kapil Bajaj, Biraj Patnaik, Suman Sahai, Jayati Ghosh, Jagdeep Chokar, Deep Joshi, Kiran Bhatty, EAS Sarma, Anjali Bhardwaj, Puneeta Roy, Praful Bidwai, Sandeep Pandey, Arundhati Dhuru, Prashanto Sen, Subhash Chandra Agarwal, Trilochan Sastry, Harsh Mander, Vipul Mudgal, Angela Rangad, Tarun Bhartiya, Aheli Chowdhury, Shailesh Gandhi, Adity Mukherjee, Mridula Mukherjee, Ashok Singh, Vasant Godse, P Sethuraman, Sunil K Kalathil, Saiprakash Nayak, M L Gupta, Pradeep Nair, Wilfred D Silva, Ujval Parghi, Aparesh Chowdhury, Shailesh Saraf , Sachin Inamdar, Yash Treasurer, Nirav Sheth, Sanjay Shirodkar, Niranjan Bangera, Harshit Patel , Sunil Suryanarayan, Kekin Ashar, Dattatreya V Pant, Pratul Bhandari, Tushar Katira, Girish Landge, Vijaya Krishna Pondala, Ramanathan Srinivasan, R. Vijayaraghavan, Karan Varma, Pankaj, Sajit Vasudevan, Kshitij Hardas, Mr Shantilal Hajeri, Dolphy D'souza, Punit Upadhyay, Kumar Rajamani, Cynthia Fernandes, Manish Kamdar, Remzil Kulkarni,Amrish Kathane, Deepak Agrawal, Charul–Vinay, Sukumar Muralidharan, Krishnamurthy TS, Kanak Dixit, K Muralidharan, Arun Saxena, president, International Consumer Rights Protection Council (ICRPC), Nadeem Sheikh, Om Jajoo, Sushila Pursnani, Ashok Jain, Prakash Kundur, Veeresh Malik, Surendra Gupta, JP Sanghavi, Dattatreya V Pant, Akhil Katyal, Prabal Biswas, R Vijayaraghavan, Anil Mehetre, Jagan Mohan Rao Ganti, Sudhir Roplekar, Ashwin Tombat (Goa), Bipin Jhaveri, Ashish Gupta, Sameer Gala, Pawan Sharma Gopal, NGK & Associates Chartered Accountants, Adi Daruwalla and Ramesh Bumb.
The main cause for concern is the face that Kingfisher Airlines has a debt of over Rs7,000 crore and this money has been extended by a consortium of nationalised and public sector banks including SBI (Rs1,500 crore), the PNB (Rs750 crore) and IDBI (Rs700 crore). The airline has outstanding amounts due of Tax Deducted at Source (TDS) of Rs422.98 crore, service tax Rs10.48 crore and fringe benefit tax of Rs4.51 crore. All this amounts to a potential bad debt at public expense if the airline goes bankrupt.
The entry of private companies into the aircraft industry has actually enforced the economic model of competition. In this case, airfares cannot be raised at will; the business model, financial management, and operational efficiency determine success. The airline industry is not unprofitable per se and other airlines have managed to operate at a profit. The irregularities of Kingfisher supplier and salary payments point to gross mismanagement.
Current rules allow 49% FDI in Indian aviation companies, but do not permit foreign airlines to own stake in India’s carriers. The suggested policy change by the Department of Industrial Policy and Promotion (DIPP), of a 26% cap of foreign carriers holding stakes in Indian airlines is unacceptable. This ameliorative measure for Kingfisher Airlines of allowing foreign buyers to own a 26% stake, will not only allow foreign carriers to invest, but also give voting rights on the board. We call for a thorough and transparent analysis of the policy regarding airlines. Before allowing FDI we must first address the issues that have arisen from private capital such as flouting safety norms. Even more so, state-run airlines should also have a clear policy before there is any consideration of foreign investment in this sector.
The citizens had demanded that under the Indian Companies Act, the government should intervene and force a change of management. Further, under no circumstance must a bailout be given without Mr Mallya being forced to liquidate his personal assets. Most importantly, there should be a review of the airline policy in a clear and transparent manner.
Since the time of writing the letter there have been several developments. On 7th March International Air Transport Association (IATA) asked travel agents to immediately stop booking tickets on Kingfisher’s behalf for failure in settling dues since February. On the same day, Hindustan Petroleum Corporation (HPCL), Kingfisher’s biggest aviation fuel supplier, had stopped refuelling as there were outstanding fuel bills of Rs515-Rs520 crore. It, however, resumed oil supplies the next day after the airline agreed to pay for daily fuel off-take. There have also been statements issued by the government on the possibility of the license of Kingfisher Airlines being cancelled.
The dire straits of the airline are tangible, however, that cannot be a reason to change an entire policy for one airline. We reiterate our demand that the government not consider this unconscionable bailout which will reinforce the skewed allocation of limited resources between the social and other sectors; that the state must force a change of management, the personal assets of Mr Mallya must be liquidated and a comprehensive review of aviation policy be initiated.”
As if the spiralling prices were not enough due to cost increase of 5%-15% in cement, steel and labour, the state government is proposing to increase stamp duty on rentals to 160 times.
While people often accuse builders and developers for hiking property rates, they are not the only ones to be blamed. Even the Maharashtra government is again raising stamp duty for leave-and-licence agreements. According to reports, the state government has proposed to hike stamp duty on leave-licence to 0.1% on market value or 1% of the average annual rent or deposit paid, whichever is higher, for residential properties. For commercial properties, the duty for lease agreements over 60 months is 0.4 per cent.
This is a big jump from the fixed amount of Rs 25,000 for residential and Rs 50,000 for commercial properties for 60 months, as is the rule now. In short, there is no relief for consumers. They can neither can afford to own a home, nor they can afford to rent one in the state. And according to some experts, the property rates in Mumbai will not come down and so there will not be any increase in sales as well.
In a report Crisil Research, said, “Notwithstanding a 40% dip in sales of new homes since mid-2011, a sharp rise in construction and funding costs, in addition to amendments to the Development Control Regulations (DCR), will increase costs for builders and prevent a reduction in home prices.”
Pankaj Kapoor, MD, Liases Foras, said, “I believe the market is going to be in hibernation for the next two to three years: neither will there be any increase in sales, nor will the prices come down. Also, new approvals are unlikely to come. Many builders' plans have gone for a toss because of the new DCR.” He said that a correction of 30% in prices is necessary, but it is not likely to happen.
With regard to the 40% slump in sales of new homes between April 2011 and February 2012, Sudhir Nair, head, CRISIL Research, explained, “Through 2011, even as the number of enquiries from buyers remained strong -- implying healthy latent demand—only a few enquiries translated into actual sales. Higher interest rates, slower economic growth, inflationary pressure and expectation of price correction led most buyers to defer buying decisions. In 2012, the latent demand is likely to spur a moderate 10% increase in new home sales.”
While new home prices will remain steady across Mumbai, the southern and central parts of the city will stand out as exceptions, says the report. Prices are likely to decline by 6%-7% in South Mumbai (Napean Sea Road, Tardeo, Opera House, Peddar Road) and 8%-10% in Central Mumbai (Worli, Prabhadevi, Lower Parel).
“Although prices fell by 20% and 10% in Central and South Mumbai in 2011, new homes in these areas will still remain unaffordable for most buyers,” added Mr Nair.
Crisil says that in 2012, cement prices in Mumbai will rise by 5%, steel by 7%-9% and labour costs will go up by 10%-15%. Funding costs, too, will remain high. On top of that, the new DCR will increase cost for builders by about 15%. All this does not leave any room for price correction.
However, Pranay Vakil, chairman, Knight Frank India said, “I believe that attitudes may soften because there is a lot of pressure on developers whose interest on loans are due. There are many reasons why the prices are not coming down. If a builder is selling flats at a certain rate and then offers later projects at a lower price, people who have bought their flats earlier will refuse to pay a higher price. But the pressure is mounting, and the rates for repayment are high. We cannot say for sure when the softening will start. But decline may be expected.”
What seems to be more distressing is the proposed hike in stamp duty in Maharashtra for leave-license; which would result in a hike in rental prices.
Subhankar Mitra, head-strategic consulting (west) Jones Lang LaSalle India, said, “Residential apartments are usually given on renewable leases of 11 months, with the nature of agreement being leave and license. The current stamp duty on these agreements was nominal at 0.1% of the lease amount. As things stand now, a person paying a rent of Rs10,000 per month will have to cough up stamp duty to the tune of Rs1,200 as opposed to Rs120.”
Mr Mitra said that on an immediate basis, there may not be any significant change in demand. However, more and more tenants in cities like Mumbai and Pune will begin showing a preference for owned rather than leased properties, as this would make more financial sense.
“There is no relief for the consumer, because the hike in stamp duty was uncalled for; and is strictly revenue-centric. It is not right to blame only the builders for price rise. Earlier, government had reduced stamp duty rates, and that led to increase in sales volumes, but now again they are raising the rates. Neither can the people afford owning homes, nor can they afford to rent,” added Mr Kapoor.